Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

SEC Modernizes the Accredited Investor Definition

sec.gov

Post reply on HN
Print view View original

101–110 of 258 posts

Re: SEC Modernizes the Accredited Investor Definition

#101

Post by airstrike »

tboyd47 wrote: post #58
airstrike wrote: post #37

Earlier quoted context omitted.

> then what is all the higher education for? How exactly does a PhD in Biology help you understand investments?

Perhaps it doesn't, but that's the point. Education should prepare you to engage with society gainfully. If one makes it through 20 years of rigorous school but at no point acquired the necessary cognitive skills to discern scams from legitimate opportunities, then the education itself is the scam.

The most obvious scams should be easy to identify, but if you think about how easy it is for even "accredited investors" to lose a lot of money. Just look at the list of people affected in Madoff's Ponzi Scheme⁰

Based on this evidence and many similar cases, I'm entirely in favor very stringent rules on who gets to place big bets on financial securities.

__________

0. https://en.wikipedia.org/wiki/Madoff_investment_scandal#Affe...

Re: SEC Modernizes the Accredited Investor Definition

#102

Post by chrisco255 »

jcranmer wrote: post #81
chrisco255 wrote: post #69

Earlier quoted context omitted.

Right, but it's not the 1920s any more. We live in this highly connected, information rich, rapidly changing world, that is fundamentally different than the 1920s in many ways. The general public is far more savvy about investments, risks, and bubbles in general than they were in the past. Today, private equity tends to capture almost all of the value before a company goes public. The crazy thing is that a foreign ci…

The 90's heralded a lot of optimism about the Internet's role in making information ever easier to access. What we've discovered in the 21st century is that it also makes disinformation easier to access. And perhaps more so, since democratization of content generation means there's fewer chances for curators to pull disinformation. I don't think it's easier for an average person in the 2020's to differentiate between…

I think a person in 2020 is far more savvy about the risks than someone in 1920. For one, they're aware of crashes, bubbles, etc. and have probably even lived through at least one of them. They also don't have to trust the advice of a single broker over the telephone. The 2008 real estate bubble was driven by the same kind of speculation that drove the 1920s stock bubble. We are probably already deep into a stock bubble today, in 2020. And yet retail investors can plop down tens of thousands of dollars on stocks through Robinhood or a myriad of other apps, paying no attention to underlying fundamentals in the business.

Re: SEC Modernizes the Accredited Investor Definition

#103

Post by alasdair_ »

colordrops wrote: post #80
mywittyname wrote: post #62

Earlier quoted context omitted.

There's a strong financial incentive for the market to engage in fraudulent activities against investors. And the smaller the investor, the greater then incentive. Public companies have regulations that help prevent such fraud by requiring things such as audits by third party accounting firms, and regulating how these audits may be performed. Such regulations came about specifically as the result of fraud committed b…

It's a matter of principle though. You don't restrict the freedom of individuals to protect them from other individuals that are bad actors. You go hard and strong after the bad actors. What other examples of laws outside of finance can you cite where individuals are restricted in order to protect them from other bad actors? It's absurd and not in the scope of what government should be doing.

>What other examples of laws outside of finance can you cite where individuals are restricted in order to protect them from other bad actors?

Pretty much any consumer safety or mandatory licensing law.

Even something as simple as buying a beer - we insist that legal adults are not allowed to buy a beer until they are older.

We insist that adults must be over 21 to buy a handgun in many states, or that (in other states) they must show that they are sophisticated gun owners by passing a firearms safety course.

We let people with special licenses and training (pharmacists) buy opiates openly, yet deny individuals the right to do so without receiving written permission.

We don't allow non-specialists to buy certain kinds of explosives, but we allow others with credentials to do so. The same applies to all kinds of things, up to and including varieties of river frogs (!).

We insist on documented "informed consent" for things like surgery, again to protect vulnerable people from bad actors.

We don't let adults buy many kind of fireworks out of fear that they will harm themselves or others, yet if someone can prove (through obtaining a license) that they are competent, we let them buy and fire huge commercial fireworks.

In short: there are an enormous number of similar restrictions. A lot of them exist because the previous state (no law) caused enough damage that restrictions were added.

Re: SEC Modernizes the Accredited Investor Definition

#104

Post by mbesto »

bjt wrote: post #86
nickpinkston wrote: post #60

Earlier quoted context omitted.

No, it's still easy for any asshole to get a margin or options account and lose a ton of money. Here's a recent news story: "20-Year-Old Robinhood Customer Dies By Suicide After Seeing A $730,000 Negative Balance" https://www.forbes.com/sites/sergeiklebnikov/2020/06/17/20-y...

Worth noting that he didn't actually lose a ton of money. Bad UI just made it appear so.

Correct. And there is technically an audit for options trading that says you need to understand how they work before a broker lets you use it. Honestly, options trading is not exactly easy to understand to the lay person and there are generally limits on how much you can lever in them.

Re: SEC Modernizes the Accredited Investor Definition

#105

Post by edoceo »

JumpCrisscross wrote: post #100
stickfigure wrote: post #95

Earlier quoted context omitted.

Seems like there's at least one "third option". The rights of minority shareholders don't have to be as minimal as they are. How about "anyone who owns stock is entitled to look at the books?"

> How about "anyone who owns stock is entitled to look at the books?" Books and records inspections are expensive for both issuer and investor. For the issuer, it almost always requires legal counsel be retained. If a company wants to raise private capital from retail investors, the JOBS Act created Reg A+ [1] for them. [1] https://en.wikipedia.org/wiki/Regulation_A#Regulation_A+

High Times (the weed mag, now media company) is doing a pretty visible RegA+ for anyone interested to see what that (mess?) looks like.

Re: SEC Modernizes the Accredited Investor Definition

#106

Post by malandrew »

mywittyname wrote: post #62
gojomo wrote: post #36

These are good steps, but abolishing all wealth-tests entirely would still be better. There's no wealth-test that prevents a person from losing all their money in highly-leveraged investments - from real-estate to fancy public-market securities. (Over-leveraging into real estate is practically encouraged by public policy.) There's no wealth test against putting all one's cash into gambling, which can be arbitrarily w…

There's a strong financial incentive for the market to engage in fraudulent activities against investors. And the smaller the investor, the greater then incentive. Public companies have regulations that help prevent such fraud by requiring things such as audits by third party accounting firms, and regulating how these audits may be performed. Such regulations came about specifically as the result of fraud committed b…

There's a strong financial incentive for the market to lobby for regulations that reduces the amount of competition it experiences when making investments. Keeping out mom and pop investors until you've extracted most of the growth is a very effective strategy to keep prices for good investments down.

Re: SEC Modernizes the Accredited Investor Definition

#107

Post by asah »

gojomo wrote: post #46
Lazare wrote: post #10

Earlier quoted context omitted.

In theory, the SEC could decide to count those. In practice, that's basically unthinkable.

It's been discussed, so it's definitely thinkable. And if getting an accredited-institution MBA, for tuition payments of anywhere from $22K to $200K, after about 17 years of other education (K-12, undergrad) isn't enough for someone to protect their own wealth from scams, what's the point of all that credentialing, anyway?

Ah yes, Joe Schmoe's One Weekend Online "Executive" MBA, no GED required.

Re: SEC Modernizes the Accredited Investor Definition

#109

Post by ibeckermayer »

elliekelly wrote: post #67
gojomo wrote: post #36

These are good steps, but abolishing all wealth-tests entirely would still be better. There's no wealth-test that prevents a person from losing all their money in highly-leveraged investments - from real-estate to fancy public-market securities. (Over-leveraging into real estate is practically encouraged by public policy.) There's no wealth test against putting all one's cash into gambling, which can be arbitrarily w…

> It's insanely paternalistic & economically destructive - a ghostly holdout from some bad experiences in another era, the 1930s, when the ranges of available information, experience, and alternative temptations were all tiny & quaint compared to the 2020s. Over the last 90 years we have repeatedly learned very difficult lessons about the individual and societal costs of unregulated securities markets and made change…

> Our securities markets work

According to what standard? Is the fact that I can’t invest $5000 in my friend’s startup an example of our securities markets “working”? Not according to any rationally justifiable standard.

Certainly the impulse to protect grandma’s life savings from predatory fraud is a good one. But the proper way to better society is through empowering individuals to make better decisions. An example of a better system along this principle would be a local (county/state) investment office that you go through that checks over the terms of the deal to make sure the terms are legal and the parties are fully aware of what they’re getting themselves into. That would protect against fraud, without violating my right to freely and consensually associate with other consenting adults. “Others might do a bad thing, therefore you should be banned from doing a good thing” is not a logically coherent standard — yet that is the essential argument of the SEC and it’s “accredited investor” protections.

Your view that these markets are “working” is merely an indication that you lack imagination. How much better would the world be if there weren’t arbitrary restrictions on economic exchange? It’s impossible to know, but history shows that advancements in liberty and justice have breed unprecedented wealth.

Re: SEC Modernizes the Accredited Investor Definition

#110

Post by jcranmer »

chrisco255 wrote: post #102
jcranmer wrote: post #81

Earlier quoted context omitted.

The 90's heralded a lot of optimism about the Internet's role in making information ever easier to access. What we've discovered in the 21st century is that it also makes disinformation easier to access. And perhaps more so, since democratization of content generation means there's fewer chances for curators to pull disinformation. I don't think it's easier for an average person in the 2020's to differentiate between…

I think a person in 2020 is far more savvy about the risks than someone in 1920. For one, they're aware of crashes, bubbles, etc. and have probably even lived through at least one of them. They also don't have to trust the advice of a single broker over the telephone. The 2008 real estate bubble was driven by the same kind of speculation that drove the 1920s stock bubble. We are probably already deep into a stock bub…

> For one, they're aware of crashes, bubbles, etc. and have probably even lived through at least one of them.

The Panic of 1929 was far from the first crash of the 1900s, let alone the only large crash in history. The Panic of 1893 would have been the big crash that everyone was afraid of before 1929, but there were more minor crashes in 1901 and 1907. Railway manias and land speculation-driven crashes litter pretty much every decade of the 19th century. The 21st century is unusual because it's pretty much the first time in modern financial history you make it an entire decade without some sort of recession.

Post reply on HN